AMSC American Superconductor Corp

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Delaware		000-19672		04-2959321
(State or other jurisdiction		(Commission		(IRS Employer
of incorporation)		File Number)		Identification No.)

114 East Main Street Ayer, Massachusetts		01432
(Address of principal executive offices)		(Zip Code)

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, $0.01 par value per share		AMSC		Nasdaq Global Select Market

(a)	Financial Statements of Businesses Acquired

(b)	Pro Forma Financial Information

(d)

Exhibits:

23.1	Consent of Kreischer Miller, Independent Auditors.
99.1	Megatran Industries, Subsidiaries and Affiliate audited combined financial statements as of and for the years ended December 31, 2023 and 2022.
99.2	Megatran Industries, Subsidiaries and Affiliate unaudited combined financial statements as of and for the six months ended June 30, 2024.
99.3	Unaudited pro forma condensed consolidated financial statements of American Superconductor Corporation as of and for the three months ended June 30, 2024 and for the year ended March 31, 2024.
104	Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document.

		AMERICAN SUPERCONDUCTOR CORPORATION
Date:	August 6, 2024	By:	/S/ JOHN W. KOSIBA, JR.
			John W. Kosiba, Jr.
			Senior Vice President and Chief Financial Officer

Exhibit 23.1

 

CONSENT OF INDEPENDENT AUDITORS

 

We consent to the incorporation by reference in Registration Statements on Form S-3 (No. 333-276766) and Form S-8 (No. 333-145685, 333- 170286, 333-183075, 333-197971, 333-213850, 333-233531, 333-266727 and 333-266728) of American Superconductor Corporation of our report dated March 26, 2024, relating to the combined balance sheets of Megatran Industries, Subsidiaries and Affiliate as of December 31, 2023 and 2022, the combined statements of operations and comprehensive income, changes in stockholders’ equity, and cash flows for the years ended December 31, 2023 and 2022, and the related notes to the combined financial statements, which report appears in the Current Report on Form 8-K/A of American Superconductor Corporation dated August 6, 2024.

 

 

/s/ Kreischer Miller

100 Witmer Road, Suite 350

Horsham, PA 19044-2369

 

August 6, 2024

 

Exhibit 99.1

 

Advisory | Audit & Accounting | Tax

 

 

 

 

Independent Auditors' Report

 

 

The Stockholders and

The Board of Directors of

Megatran Industries, Subsidiaries and Affiliate

Bordentown, New Jersey

 

Opinion

 

We have audited the combined financial statements of Megatran Industries, Subsidiaries and Affiliate, which comprise the combined balance sheets as of December 31, 2023 and 2022, and the related combined statements of operations and comprehensive income, changes in stockholders' equity, and cash flows for the years then ended, and the related notes to the combined financial statements.

 

In our opinion, the accompanying combined financial statements present fairly, in all material respects, the financial position of Megatran Industries, Subsidiaries and Affiliate as of December 31, 2023 and 2022, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditors' Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of Megatran Industries, Subsidiaries and Affiliate, and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

Responsibilities of Management for the Financial Statements

 

Management is responsible for the preparation and fair presentation of the combined financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of combined financial statements that are free from material misstatement, whether due to fraud or error.

 

In preparing the combined financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about Megatran Industries, Subsidiaries and Affiliate's ability to continue as a going concern for one year after the date that the combined financial statements are issued.

 

 

 

100 Witmer Road, Suite 350, Horsham, PA 19044-2369

215-441-4600 | fax: 215-672-8224 | www.kmco.com

 

 

Auditors' Responsibilities for the Audit of the Financial Statements

 

Our objectives are to obtain reasonable assurance about whether the combined financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the combined financial statements.

 

In performing an audit in accordance with GAAS, we:

 

●

Exercise professional judgment and maintain professional skepticism throughout the audit.

 

●

Identify and assess the risks of material misstatement of the combined financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the combined financial statements.

 

●

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Megatran Industries, Subsidiaries and Affiliate's internal control. Accordingly, no such opinion is expressed.

 

●

Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the combined financial statements.

 

●

Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about Megatran Industries, Subsidiaries and Affiliate's ability to continue as a going concern for a reasonable period of time.

 

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control–related matters that we identified during the audit.

 

 

Supplementary Information

Our audits were conducted for the purpose of forming an opinion on the combined financial statements taken as a whole. The supplementary information in Schedules I, II, and III is presented for purposes of additional analysis and is not a required part of the combined financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the combined financial statements. The information has been subjected to the auditing procedures applied in the audits of the combined financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the combined financial statements or to the combined financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the combined financial statements taken as a whole.

 

Horsham, Pennsylvania

March 26, 2024

 

 

Combined Balance Sheets

December 31, 2023 and 2022

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		2023				2022
ASSETS
Current assets:
Cash		$	1,800,846			$	2,693,741
Accounts receivable, net of allowance for credit losses of $41,582 and $19,136 in 2023 and 2022, respectively			21,383,043				16,925,825
Inventories, net			18,606,140				17,500,927
Prepaid expenses and other current assets			1,242,251				1,406,558
Total current assets			43,032,280				38,527,051
Property, plant and equipment, net			3,872,454				3,597,718
Investment in joint venture			2,118,612				2,059,581
Goodwill, net			170,060				191,390
Advances to stockholders			6,000				6,000
Investment in insurance captive			36,000				36,000
		$	49,235,406			$	44,417,740
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit		$	2,000,000			$	2,500,000
Current portion of long-term debt			-				67,543
Accounts payable			2,021,873				2,013,535
Accrued expenses			3,261,723				2,129,215
Retirement plan payable			120,080				250,000
Accrued distributions			1,600,291				1,633,475
Deferred revenue			4,212,662				5,587,693
Total current liabilities			13,216,629				14,181,461
Stockholders' equity:
Common stock, no par value, 500,000 shares authorized, 226,790 issued and outstanding			45,358				45,358
Retained earnings			36,345,083				30,513,588
Accumulated other comprehensive loss			(377,622	)			(328,625	)
			36,012,819				30,230,321
Equity in NWL International Sales Inc.			5,958				5,958
Total stockholders' equity			36,018,777				30,236,279
		$	49,235,406			$	44,417,740

 

See accompanying notes to combined financial statements.

 

 

Combined Statements of Operations and Comprehensive Income

For the Years Ended December 31, 2023 and 2022

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		2023				%				2022				%
Net sales		$	72,315,328				100.0	%		$	56,164,113				100.0	%
Cost of goods sold (Schedule I)			55,065,130				76.1				47,453,621				84.5
Gross profit			17,250,198				23.9				8,710,492				15.5
Selling, general and administrative expenses (Schedule II)			11,507,395				15.9				9,329,960				16.6
Income (loss) from operations			5,742,803				8.0				(619,468	)			(1.1	)
Other, net (Schedule III)			2,388,692				3.3				1,231,026				2.2
Income from continuing operations			8,131,495				11.3				611,558				1.1
Other comprehensive income (loss): Foreign currency translation adjustment			(48,997	)			(0.1	)			(198,152	)			(0.4	)
Comprehensive income		$	8,082,498				11.2	%		$	413,406				0.7	%

 

 

See accompanying notes to combined financial statements.

 

 

Combined Statements of Changes in Stockholders' Equity

Years Ended December 31, 2023 and 2022

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		Common Stock				Retained Earnings				Accumulated Other Comprehensive Income (Loss)				Equity in NWL International Sales Inc.				Total
Balance, January 1, 2022		$	45,358			$	30,595,471			$	(130,473	)		$	5,956			$	30,516,312
Net income (loss)			-				(81,883	)			-				693,441				611,558
Distributions to stockholders			-				-				-				(693,439	)			(693,439	)
Foreign currency translation adjustment			-				-				(198,152	)			-				(198,152	)
Balance, December 31, 2022			45,358				30,513,588				(328,625	)			5,958				30,236,279
Net income			-				6,856,495				-				1,275,000				8,131,495
Distributions to stockholders			-				(1,025,000	)			-				(1,275,000	)			(2,300,000	)
Foreign currency translation adjustment			-				-				(48,997	)			-				(48,997	)
Balance, December 31, 2023		$	45,358			$	36,345,083			$	(377,622	)		$	5,958			$	36,018,777

 

 

See accompanying notes to combined financial statements.

 

 

Combined Statements of Cash Flows

Years Ended December 31, 2023 and 2022

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		2023				2022
Cash flows from operating activities:
Net income		$	8,131,495			$	611,558
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation			392,675				457,906
Amortization			21,330				132,459
Allowance for credit losses			45,334				150,000
Reserve for obsolete inventory			472,187				(307,442	)
Net income from joint venture			(430,607	)			(479,440	)
Gain on sale of property, plant, and equipment			-				(471,999	)
(Increase) decrease in assets:
Accounts receivable			(4,502,552	)			(6,579,009	)
Inventories			(1,577,400	)			(170,324	)
Prepaid expenses and other current assets			164,307				(783,405	)
Increase (decrease) in liabilities:
Accounts payable			8,338				(773,887	)
Accrued expenses			1,132,508				442,421
Retirement plan payable			(129,920	)			250,000
Deferred revenue			(1,375,031	)			5,198,581
Net cash provided by (used in) operating activities			2,352,664				(2,322,581	)
Cash flows from investing activities:
Purchase of property, plant and equipment			(667,411	)			(213,149	)
Proceeds from sale of property, plant, and equipment			-				1,242,597
Cash paid in connection with acquisitions, net			-				(48,425	)
Dividend received from investment in joint venture			274,077				138,802
Net cash provided by (used in) investing activities			(393,334	)			1,119,825
Cash flows from financing activities:
Borrowings (repayments) on line of credit			(500,000	)			2,500,000
Repayments of long-term debt			(67,543	)			(62,516	)
Distributions to stockholders			(2,333,184	)			(567,999	)
Net cash provided by (used in) financing activities			(2,900,727	)			1,869,485
Foreign exchange impact on cash and cash equivalents			48,502				(53,455	)
Net increase (decrease) in cash			(892,895	)			613,274
Cash, beginning of year			2,693,741				2,080,467
Cash, end of year		$	1,800,846			$	2,693,741
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest		$	151,137			$	81,004
Supplemental disclosure of noncash investing and financing activities:
Change in accrued shareholder distributions		$	(33,184	)		$	125,440
Dividend receivable from investment in joint venture		$	-			$	158,972

 

See accompanying notes to combined financial statements.

 

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(1)	Nature of Operations

 

Megatran Industries, Subsidiaries and Affiliate (the Company) includes Megatran Industries (Megatran), a holding company which owns 100% of the common stock of NWL, Inc. (NWL) Hunter Industries, Inc. (Hunter) and BUED (NWL Europe). NWL is a manufacturer of power supplies and transformers for sale to a variety of industries in the United States and internationally. Hunter holds real estate which is leased to NWL. The Company has manufacturing facilities in Bordentown and Florence, New Jersey. NWL Europe is a manufacturer of transformers for sale to a variety of industries in Europe.

 

In January 2016, NWL International Sales Inc. (NWLIS) was incorporated. NWLIS is an Interest Charge Domestic International Sales Corporation (IC-DISC) that transacts certain international sales on behalf of NWL and receives commissions from NWL. The financial statements of the Company and NWLIS are combined because they are commonly-owned and controlled. The combined financial statements include the accounts of NWLIS despite Megatran having no direct ownership in NWLIS. The carrying amount of the assets included in the Company's combined balance sheets for NWLIS is $5,958 for December 31, 2023 and 2022.

 

 

(2)	Summary of Significant Accounting Policies

 

Principles of Combination

 

The combined financial statements include the accounts of Megatran, NWL, Hunter, NWLIS and NWL Europe. All significant intercompany transactions and balances have been eliminated in combination.

 

Accounts Receivable and Allowance for Credit Loses

 

On January 1, 2023, the Company adopted Financial Standards Board (FASB) Accounting Standards Update (ASU) 2016-13, Financial Instruments – Credit Losses (Topic 326). The standard replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss methodology (the CECL Model). The CECL Model requires an estimate of credit losses for the remaining estimated list of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts and generally applies to financial assets measured at amortized cost. The primary objective of the CECL Model is to provide financial statement users with an estimate of the net amount the entity expects to collect on its financial assets by using an allowance for credit losses.

The Company adopted FASB Accounting Standards Codification (ASC) 326 and all related subsequent amendments thereto effective January 1, 2023 using the modified retrospective approach for all financial assets measured at amortized cost. The Company's adoption of the CECEL Model did not result in a cumulative effect adjustment being recorded to opening retained earnings as of January 1, 2023, and did not have a material impact on the Company's statements of operations and comprehensive income or cash flows.

 

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(2)	Summary of Significant Accounting Policies, Continued

 

Accounts Receivable and Allowance for Credit Losses, Continued

 

Trade accounts receivable are stated at the amount the Company expects to collect. The Company maintains allowances for credit losses for estimated losses resulting from the inability of its customers to make required payments. Management evaluates its historical loss experience and applies this historical loss ratio to financial assets with similar characteristics. The Company's historical loss ratio or its determination of risk pools may be adjusted for changes in customer, economic, market or other circumstances. Significant past due balances over 90 days and other higher risk amounts are reviewed individually for collectability based on the following customer specific factors: customer credit-worthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms. If the financial condition of the Company's customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required. Based on management's assessment, the Company provides for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. Accounts receivable, net of allowance for doubtful accounts was $10,337,844 as of January 1, 2022.

 

Concentrations of Risk

 

Financial instruments that potentially subject the Company to concentrations of risk consist primarily of cash and accounts receivable. The Company maintains its cash with national financial institutions, and, at times, such balances may exceed the FDIC insurance limit. At December 31, 2023, the Company had $2,207,136 of cash in excess of FDIC insured limits.

 

One customer accounts for approximately 45% of the Company's accounts receivable at December 31, 2023 and one customer accounted for approximately 39% of sales for the year ended December 31, 2023.

 

Inventories

 

Inventories are valued at the lower of cost (first in, first out basis) or net realizable value.

 

Property, Plant and Equipment

 

Property, plant and equipment are recorded at cost. Depreciation is calculated based on estimated useful lives of the assets using the straight line method. Maintenance, repairs and betterments are charged to operations as incurred. Renewals and betterments that extend the estimated useful lives of the assets are capitalized.

 

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(2)	Summary of Significant Accounting Policies, Continued

 

Revenue Recognition

 

Revenue is measured based on consideration specified in a contract with a customer. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as fulfillment costs and are included in cost of goods sold. Revenue from performance obligations satisfied at a point in time consists of sales of power supplies, transformers and capacitors. These goods and services are sold primarily to governmental entities and manufacturers. Deferred revenue includes amounts that customers pay prior to the shipment of products. Deferred revenue was $389,112 as of January 1, 2022.

 

The Company's principal terms of sale are FOB shipping point and FOB destination and the Company transfers control and records revenue for product sales either upon shipment or delivery to the customer, respectively. The payment terms and conditions in customer contracts vary from 30-90 days from transfer of control. The Company does not have any significant financing components as payment is received at or shortly after the point of sale. Variable consideration, including return and warranty activity, is immaterial to revenue and results of operations.

 

Investment in Joint Venture

 

The Company accounts for its investment in joint venture using the equity method (see Note 7).

 

Goodwill

 

Goodwill represents the excess of costs over fair value of net assets of businesses acquired. The Company applies the guidance in FASB ASU 2014-18, Accounting for Identifiable Intangible Assets in a Business Combination, which allows entities who meet the definition of a private company to subsume many of the types of customer-related intangible assets that they would otherwise recognize separately into goodwill. This accounting alternative will be applied to any future business combination transactions. As a result of the application of ASU 2014-18, the Company is also required to apply the guidance in FASB ASU 2014-02, Intangibles - Goodwill and Other, which allows the amortization of all existing and new goodwill. Under ASU 2014-02, goodwill is amortized on a straight-line basis over ten years, or less than ten years, if the entity demonstrates that a shorter useful life is more appropriate. In addition, entities are required to test goodwill for impairment only upon the occurrence of a triggering event and, upon adoption of the accounting alternative, an entity must make an accounting policy election to test goodwill for impairment at either the entity level or the reporting unit level. Management has elected to amortize goodwill over ten years and test for impairment at the reporting unit level, should triggering events occur. No triggering events were identified during the years ended December 31, 2023 and 2022.

 

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(2)	Summary of Significant Accounting Policies, Continued

 

Investment in Insurance Captive

 

The Company participates in a group captive insurance program (Captive) for workers' compensation and general liability insurance. Members pay annual premiums, of which an amount may be refunded to a member depending on the member's individual claims, as well as the Captive's overall claims.

 

Warranty Reserve

 

The Company offers warranties on its products ranging from twelve to forty months depending on the product line. Warranty reserves are determined based on management's past experience for returns and warranty claims and are included in accrued expenses.

 

Research and Development

 

Research and development costs are expensed as incurred. Research and development expense from continuing operations was $271,218 and $257,557 for the years ended December 31, 2023 and 2022, respectively.

 

Variable Interest Entities

 

FASB ASC 810, Consolidation, provides guidance in determining when variable interest entities (VIE)s should be consolidated in the financial statements of the primary beneficiary. If the Company is deemed to have a controlling financial interest as a result of having the power to direct the activities that most significantly impact the entity's economic performance, and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE, the VIE is to be consolidated within the financial statements of the Company. NWLIS has been determined to be a VIE of the Company as NWLIS is dependent on the commission revenue from NWL. Since all rights, obligations and the power to direct the activities of a VIE that most significantly impact the VIE's economic performance are held by the owners of NWLIS and not by the Company, the Company has determined that it is not the primary beneficiary of NWLIS and therefore, NWLIS will be combined and not consolidated into the financial statements. The Company does not believe there is any exposure to loss as a result of transactions with NWLIS.

 

Income Taxes

 

Effective January 1, 2015, Megatran, NWL and Hunter elected to be taxed as S corporations under the provisions of the Internal Revenue Code. Under those provisions, the Company does not pay federal or state corporate income taxes because the Company's taxable income is passed through to the tax returns of the stockholders. Accordingly, no provision is made for federal or state income taxes. However, it is common for the Company to make distributions to the stockholders to pay the income taxes relating to the Company's income that is passed through to the stockholders' tax returns.

 

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(2)	Summary of Significant Accounting Policies, Continued

 

Income Taxes, Continued

 

The stockholders of NWLIS have elected to treat NWLIS as an IC-DISC for federal income tax purposes. NWLIS does not pay federal or state corporate income taxes because NWLIS' taxable income is passed through to the tax returns of the stockholders. Accordingly, no provision is made for federal or state income taxes.

 

FASB ASC 740, Income Taxes, clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements. FASB ASC 740 prescribes a more-likely-than-not recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken. In addition, FASB ASC 740 provides guidance on derecognition, classification and disclosure. In addition to its federal returns, the Company files income tax returns in New Jersey and North Carolina. The Company is no longer subject to federal, state or local tax examinations by tax authorities for years before 2020. It is difficult to predict the timing and resolution of any particular uncertain tax position. Based on the Company's assessment of many factors, including past experience and complex judgments about future events, the Company does not currently anticipate significant changes in its tax positions over the next twelve months.

 

Foreign Currency Translation

 

Foreign currency translation adjustments are included in other comprehensive income and are reflected in accumulated other comprehensive income (loss) in the accompanying balance sheets.

 

Use of Estimates

 

The preparation of the combined financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the combined financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

 

Subsequent Events

 

Management has evaluated subsequent events through March 26, 2024, the date on which the combined financial statements were available to be issued.

 

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(3)	Inventories, net

 

Inventories, net comprise the following at December 31:

 

		2023				2022
Raw material		$	13,890,596			$	12,116,196
Work-in-process			4,083,698				3,771,841
Finished goods			1,954,998				2,463,855
			19,929,292				18,351,892
Reserve for obsolescence			(1,323,152	)			(850,965	)
		$	18,606,140			$	17,500,927

 

 

(4)	Advances to Stockholders

 

Advances to stockholders are unsecured, noninterest bearing advances. These advances do not have set repayment dates.

 

 

(5)	Property, Plant and Equipment, net

 

Property, plant and equipment, net comprise the following at December 31:

 

 

										Estimated
		2023				2022				Useful Lives (Years)
Land		$	303,348			$	303,348
Buildings and building improvements			6,370,079				6,192,207				7	-	39
Machinery and equipment			7,869,499				7,476,510				7	-	10
Solar equipment			5,667,333				5,667,333				7	-	15
Automobiles and trucks			299,842				226,094					5
Office equipment			551,554				551,554				5	-	7
Computer hardware and software			585,606				573,811				3	-	5
			21,647,261				20,990,857
Accumulated depreciation			(17,774,807	)			(17,393,139	)
		$	3,872,454			$	3,597,718

 

Depreciation expense for the years ended December 31, 2023 and 2022 was $392,675 and $457,906, respectively.

 

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(6)	Goodwill, net

 

Goodwill, net comprises the following at December 31:

 

		2023				2022
CE Power Solutions		$	1,109,989			$	1,109,989
BUED			213,305				213,305
			1,323,294				1,323,294
Accumulated amortization			(1,153,234	)			(1,131,904	)
		$	170,060			$	191,390

 

Amortization expense was $21,330 and $132,459 for the years ended December 31, 2023 and 2022, respectively.

 

 

(7)	Investment in Joint Venture

 

NWL owns 50% of NWL Pacific Inc. Co., LTD. (NWL Pacific) which is a joint venture in South Korea. The joint venture was established on May 12, 1998. The Company's reporting currency is the US dollar while the functional currency of the joint venture is the South Koren Won. The assets, liabilities and equity of the joint venture have been measured at the respective exchange rate as of December 31, 2023 and 2022 and income and expense accounts were remeasured at the average rates in effect during the years ended December 31, 2023 and 2022. Remeasurement adjustments are recognized in the year of occurrence and are included as a component of stockholder's equity. In addition, The Company's share of the joint venture's net income or loss is recognized in the year of occurrence.

 

The Company's investment in the foreign operation is summarized as follows:

 

		2023				2022
Investment, January 1		$	2,059,581			$	2,022,612
Company's share of net income			430,607				479,440
Company's share of dividends			(274,077	)			(297,774	)
Foreign currency translation adjustment			(97,499	)			(144,697	)
Investment, December 31		$	2,118,612			$	2,059,581

 

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(7)	Investment in Joint Venture, Continued

 

Presented below are the summary balance sheets and summary of operations of the foreign operation based on the audited financial statements of NWL Pacific:

 

		2023				2022
Assets:
Current assets		$	5,255,791			$	6,668,330
Noncurrent assets			493,865				540,698
Total assets		$	5,749,656			$	7,209,028
Liabilities and stockholders' equity:
Current liabilities		$	1,512,433			$	3,089,865
Equity			4,237,223				4,119,163
Total liabilities and equity		$	5,749,656			$	7,209,028
Operations:
Sales		$	8,299,324			$	9,195,244
Cost of sales			(5,540,671	)			(6,201,536	)
Selling, general and administrative expenses			(1,813,830	)			(1,853,003	)
Other expense			(83,609	)			(181,825	)
Net income		$	861,214			$	958,880

 

 

(8)	Related Party Transactions

 

During the years ended December 31, 2023 and 2022, the Company sold $1,735,486 and $2,891,665, respectively, of product to NWL Pacific. The Company has $876,230 and $1,704,513, respectively, included in accounts receivable from NWL Pacific at December 31, 2023 and 2022.

 

 

(9)	Line of Credit

 

The Company has a $5,000,000 working line of credit with a commercial bank that expires in August 2024. The balance on the line of credit was $2,000,000 and $2,500,000 as of December 31, 2023 and 2022, respectively. Borrowings on the line of credit bear interest at the daily LIBOR rate plus 1.80% (7.11% at December 31, 2023). Up to $5,000,000 of the working line of credit may be used towards letters of credit. At December 31, 2023, $2,000,000 letters of credit are outstanding. The line is collateralized by the assets of the Company.

 

---

 

(10)	Long-Term Debt

 

Long-term debt comprises the following at December 31, 2022:

 

Equipment loan, payable in monthly installments of$5,868 including interest at 5.63%. The loan is collateralized by the equipment and matures in November 2023.		$	67,543
Current portion			(67,543	)
		$	-

 

 

(11)	Retirement Plan

 

NWL maintains a 401(k) plan to provide retirement benefits to its employees. Employee contributions are limited by Internal Revenue Service regulations. There were no matching contributions and profit sharing contributions made for the year ended December 31, 2022, respectively. Total Company matching contributions and profit sharing contributions were $490,499 and $250,000 made for the years ended December 31, 2023 and 2022, respectively.

 

 

(12)	Self-Insurance

 

The Company maintains a self-insured program for all of its employees' health care costs. The Company is liable for paid claims up to $175,000 per participant, annually, unlimited for a covered person's lifetime, and aggregate claims up to $3,501,236 annually. The program has an insurance stop loss policy for claims in excess of $175,000 per participant and aggregate claims in excess of $3,501,236. The maximum reimbursement under the insurance stop loss policy is $1,000,000. Self- insurance costs are accrued based on the aggregate liability for reported claims and an estimated liability for claims incurred but not reported. The accrued liability under the self-insurance program for the years ended December 31, 2023 and 2022 was approximately $396,000 and $599,000, respectively, and is included in accrued expenses on the accompanying combined balance sheets.

 

 

(13)	Employee Retention Tax Credit

 

During the year ended December 31, 2023, the Company applied for the Employee Retention Credit (ERC), which is a provision of the CARES Act, enacted March 27, 2020. The ERC under the CARES Act was later amended and extended under the Taxpayer Certainty and Disaster Relief Act of 2020 (Relief Act), enacted December 27, 2020. The ERC is a refundable tax credit against employer taxes equal to a percentage of the qualified wages an eligible employer pays to employees.

 

---

(13)	Employee Retention Tax Credit, Continued

The Company filed for each eligible quarter and recognized employee retention tax credits in the amount of $1,577,608 as other income in the accompanying consolidated statement of operations for the year ended December 31, 2023. The Company has accounted for the ERC under International Accounting Standards (IAS) 20, Accounting for Government Grants and Disclosure of Government Assistance. In accordance with IAS 20, government assistance is not recognized until there is a reasonable assurance that (1) any conditions attached to the assistance will be met and (2) the assistance will be received. The Company met these conditions and recorded the ERC over the periods in which the associated expenses were incurred.

 

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTARY INFORMATION

 

 

 

 

 

 

 

 

 

 

 

 

Megatran Industries, Subsidiaries and Affiliate

 

Supplementary Information

Combined Schedules of Cost of Goods Sold

Years Ended December 31, 2023 and 2022

---

 

 

						% of Net								% of Net
		2023				Sales				2022				Sales
Direct costs:
Direct materials		$	35,189,294				48.6	%		$	29,084,387				51.7	%
Direct labor			8,663,238				12.0				7,876,795				14.0
			43,852,532				60.6				36,961,182				65.7
Indirect costs:
Personnel:
Wages			3,517,755				4.9				3,367,875				6.0
Employee benefits			1,948,259				2.7				1,722,183				3.1
Payroll taxes			1,472,348				2.0				1,314,593				2.3
Recruitment			109,301				0.2				32,942				0.1
			7,047,663				9.8				6,437,593				11.5
Manufacturing:
Production supplies			554,353				0.8				487,582				0.9
Sub-contract services			389,944				0.5				425,434				0.8
Manufacturing - development			238,951				0.3				207,537				0.4
Manufacturing - miscellaneous			667,573				0.9				746,257				1.3
Small tools			113,983				0.2				63,690				0.1
Quality control			21,129				-				20,111				-
Overhead allocation, net			155,644				0.2				92,093				0.2
			2,141,577				2.9				2,042,704				3.7
Facilities:
Repairs and maintenance			554,437				0.8				602,270				1.1
Depreciation			323,423				0.4				407,546				0.7
Utilities			288,198				0.4				373,296				0.7
Insurance			583,346				0.8				360,607				0.6
Property and sales taxes			273,954				0.4				268,423				0.5
			2,023,358				2.8				2,012,142				3.6
Total indirect costs			11,212,598				15.5				10,492,439				18.8
Cost of goods sold		$	55,065,130				76.1	%		$	47,453,621				84.3	%

 

See accompanying notes to combined financial statements.

 

Megatran Industries, Subsidiaries and Affiliate

 

Supplementary Information

Combined Schedules of Selling, General and Administrative Expenses

Years Ended December 31, 2023 and 2022

---

 

 

						% of Net								% of Net
		2023				Sales				2022				Sales
Selling		$	96,407				0.1	%		$	39,488				0.1	%
Service calls			306,279				0.4				334,242				0.6
Travel			65,988				0.1				79,977				0.1
Commissions			131,468				0.2				171,198				0.3
Advertising and marketing			29,575				-				1,535				-
Automobile			8,748				-				3,576				-
Wages			7,122,402				9.8				5,563,852				9.9
Employee benefits			1,079,994				1.5				870,147				1.5
Employee welfare			52,299				0.1				59,334				0.1
Employee education			44,276				0.1				40,230				0.1
Retirement plan			490,449				0.7				250,000				0.4
Depreciation			69,252				0.1				50,360				0.1
Amortization			21,330				-				132,459				0.2
Professional fees			638,634				0.9				497,154				0.9
Engineering			408,909				0.6				236,124				0.4
Lease expense			57,644				0.1				70,074				0.1
Bad debt expense			45,334				0.1				150,000				0.3
Miscellaneous			209,383				0.3				144,216				0.3
Computer expenses			282,736				0.4				287,640				0.5
Telephone			66,720				0.1				66,627				0.1
Office expense			67,409				0.1				93,002				0.2
Payroll service			172,299				0.2				139,939				0.2
Taxes			744				-				947				-
Bank charges			38,135				0.1				46,864				0.1
Computer consulting			875				-				935				-
Dues and subscriptions			106				-				40				-
		$	11,507,395				15.9	%		$	9,329,960				16.6	%

 

 

See accompanying notes to combined financial statements.

 

Megatran Industries, Subsidiaries and Affiliate

 

Supplementary Information

Combined Schedules of Other, Net

Years Ended December 31, 2023 and 2022

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						% of Net								% of Net
		2023				Sales				2022				Sales
Net income from joint venture		$	430,607				0.5	%		$	479,440				0.8	%
Gain on sale of property, plant and equipment			-				-				471,999				0.8
Employee Retention Credit			1,577,608				2.2				-				-
Rental income			-				-				31,250				0.1
State income taxes			(3,086	)			-				(4,200	)			-
Interest income (expense), net			4,645				-				(81,004	)			(0.1	)
License fee income			87,722				0.1				71,243				0.1
Miscellaneous income			53,736				0.1				43,945				0.1
Solar renewable energy certificates income			237,460				0.3				218,353				0.4
		$	2,388,692				3.3	%		$	1,231,026				2.2	%

 

 

See accompanying notes to combined financial statements.

 

Exhibit 99.2

 

 

Combined Balance Sheets

June 30, 2024 and 2024

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		2024				2023
ASSETS
Current assets:
Cash		$	2,545,453			$	1,635,144
Accounts receivable, net of allowance for credit losses of $37,000 and $6,554 in 2024 and 2023, respectively			20,036,139				18,860,927
Inventories, net			21,206,800				19,605,842
Prepaid expenses and other current assets			1,457,162				1,033,586
Total current assets			45,245,554				41,135,499
Property, plant and equipment, net			4,685,523				3,794,944
Investment in joint venture			1,979,421				1,921,318
Goodwill, net			159,395				180,725
Advances to stockholders			6,000				6,000
Investment in insurance captive			36,000				36,000
		$	52,111,893			$	47,074,486
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit		$	3,000,000			$	2,000,000
Current portion of long-term debt			-				34,425
Accounts payable			2,903,862				2,845,775
Accrued expenses			1,892,514				2,627,183
Retirement plan payable			120,000				118,333
Accrued distributions			975,288				1,605,726
Deferred revenue			4,217,048				5,124,508
Total current liabilities			13,108,712				14,355,950
Stockholders' equity:
Common stock, no par value, 500,000 shares authorized, 226,790 issued and outstanding			45,358				45,358
Retained earnings			39,286,016				33,004,968
Accumulated other comprehensive loss			(334,151	)			(337,748	)
			38,997,223				32,712,578
Equity in NWL International Sales Inc.			5,958				5,958
Total stockholders' equity			39,003,181				32,718,536
		$	52,111,893			$	47,074,486

See accompanying notes to combined financial statements.

 

 

Combined Statements of Operations and Comprehensive Income

For the Six Months Ended June 30, 2024 and 2023

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		2024				%				2023				%
Net sales		$	38,304,328				100.0	%		$	35,802,393				100.0	%
Cost of goods sold (Schedule I)			26,998,594				70.5				27,825,793				77.7
Gross profit			11,305,734				29.5				7,976,600				22.3
Selling, general and administrative expenses (Schedule II)			6,341,373				16.6				4,984,763				13.9
Income from operations			4,964,361				12.9				2,991,837				8.4
Other, net (Schedule III)			(48,430	)			(0.1	)			86,543				0.2
Net income			4,915,931				12.8				3,078,380				8.6
Other comprehensive income (loss): Foreign currency translation adjustment			43,471				0.1				(9,123	)			-
Comprehensive income		$	4,959,402				12.9	%		$	3,069,257				8.6	%

 

 

See accompanying notes to combined financial statements.

 

 

Combined Statements of Changes in Stockholders' Equity

For the Six Months Ended June 30, 2024 and 2023

---

 

 

		Common Stock				Retained Earnings				Accumulated Other Comprehensive Loss				Equity in NWL International Sales Inc.				Total
Balance, January 1, 2023		$	45,358			$	30,513,588			$	(328,625	)		$	5,958			$	30,236,279
Net income			-				2,491,380				-				587,000				3,078,380
Distributions to stockholders			-				-				-				(587,000	)			(587,000	)
Foreign currency translation adjustment			-				-				(9,123	)			-				(9,123	)
Balance, June 30, 2023		$	45,358			$	33,004,968			$	(337,748	)		$	5,958			$	32,718,536
Balance, January 1, 2024		$	45,358			$	36,345,083			$	(377,622	)		$	5,958			$	36,018,777
Net income			-				4,265,931				-				650,000				4,915,931
Distributions to stockholders			-				(1,324,998	)			-				(650,000	)			(1,974,998	)
Foreign currency translation adjustment			-				-				43,471				-				43,471
Balance, June 30, 2024		$	45,358			$	39,286,016			$	(334,151	)		$	5,958			$	39,003,181

 

 

See accompanying notes to combined financial statements.

 

 

Combined Statements of Cash Flows

For the Six Months Ended June 30, 2024 and 2023

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		2024				2023
Cash flows from operating activities:
Net income		$	4,915,931			$	3,078,380
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			223,290				209,277
Amortization			10,665				10,665
(Increase) decrease in assets:
Accounts receivable			1,346,904				(1,935,102	)
Inventories			(2,600,660	)			(2,104,915	)
Prepaid expenses and other current assets			(214,911	)			372,972
Increase (decrease) in liabilities:
Accounts payable			881,989				832,240
Accrued expenses			(1,369,209	)			497,968
Retirement plan payable			(80	)			(131,667	)
Deferred revenue			4,386				(463,185	)
Net cash provided by operating activities			3,198,305				366,633
Cash flows from investing activities:
Purchase of property, plant and equipment			(1,036,359	)			(406,503	)
Dividend received from investment in joint venture			139,191				138,263
Net cash used in investing activities			(897,168	)			(268,240	)
Cash flows from financing activities:
Borrowings (repayments) on line of credit			1,000,000				(500,000	)
Repayments of long-term debt			-				(33,118	)
Distributions to stockholders			(2,600,001	)			(614,749	)
Net cash used in financing activities			(1,600,001	)			(1,147,867	)
Foreign exchange impact on cash and cash equivalents			43,471				(9,123	)
Net increase (decrease) in cash			744,607				(1,058,597	)
Cash, beginning of period			1,800,846				2,693,741
Cash, end of period		$	2,545,453			$	1,635,144
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest		$	90,488			$	76,884
Supplemental disclosure of noncash investing and financing activities:
Change in accrued shareholder distributions		$	(625,003	)		$	(27,749	)

 

See accompanying notes to combined financial statements.

 

 

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(1)	Nature of Operations

 

Megatran Industries, Subsidiaries and Affiliate (the Company) includes Megatran Industries (Megatran), a holding company which owns 100% of the common stock of NWL, Inc. (NWL) Hunter Industries, Inc. (Hunter) and BUED (NWL Europe). NWL is a manufacturer of power supplies and transformers for sale to a variety of industries in the United States and internationally. Hunter holds real estate which is leased to NWL. The Company has manufacturing facilities in Bordentown and Florence, New Jersey. NWL Europe is a manufacturer of transformers for sale to a variety of industries in Europe.

 

In January 2016, NWL International Sales Inc. (NWLIS) was incorporated. NWLIS is an Interest Charge Domestic International Sales Corporation (IC-DISC) that transacts certain international sales on behalf of NWL and receives commissions from NWL. The financial statements of the Company and NWLIS are combined because they are commonly-owned and controlled. The combined financial statements include the accounts of NWLIS despite Megatran having no direct ownership in NWLIS. The carrying amount of the assets included in the Company's combined balance sheets for NWLIS is

$5,958 for June 30, 2024 and 2023.

 

 

(2)	Summary of Significant Accounting Policies

 

Principles of Combination

 

The combined financial statements include the accounts of Megatran, NWL, Hunter, NWLIS and NWL Europe. All significant intercompany transactions and balances have been eliminated in combination.

Accounts Receivable and Allowance for Credit Losses

 

Trade accounts receivable are stated at the amount the Company expects to collect. The Company maintains allowances for credit losses for estimated losses resulting from the inability of its customers to make required payments. Management evaluates its historical loss experience and applies this historical loss ratio to financial assets with similar characteristics. The Company's historical loss ratio or its determination of risk pools may be adjusted for changes in customer, economic, market or other circumstances. Significant past due balances over 90 days and other higher risk amounts are reviewed individually for collectability based on the following customer specific factors: customer credit-worthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms. If the financial condition of the Company's customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required. Based on management's assessment, the Company provides for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. Accounts receivable, net of allowance for credit losses was $21,383,043 and

$16,925,825 as of January 1, 2024 and 2023, respectively.

 

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(2)	Summary of Significant Accounting Policies, Continued

 

Concentrations of Risk

 

Financial instruments that potentially subject the Company to concentrations of risk consist primarily of cash and accounts receivable. The Company maintains its cash with national financial institutions, and, at times, such balances may exceed the FDIC insurance limit. At June 30, 2024, the Company had $3,264,118 of cash in excess of FDIC insured limits.

 

One customer accounts for approximately 47% of the Company's accounts receivable at June 30, 2024 and one customer accounted for approximately 35% of sales for the six months ended June 30, 2024.

 

Inventories

 

Inventories are valued at the lower of cost (first in, first out basis) or net realizable value.

 

Property, Plant and Equipment

 

Property, plant and equipment are recorded at cost. Depreciation is calculated based on estimated useful lives of the assets using the straight line method. Maintenance, repairs and betterments are charged to operations as incurred. Renewals and betterments that extend the estimated useful lives of the assets are capitalized.

 

Revenue Recognition

 

Revenue is measured based on consideration specified in a contract with a customer. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as fulfillment costs and are included in cost of goods sold. Revenue from performance obligations satisfied at a point in time consists of sales of power supplies, transformers, and capacitors. These goods and services are sold primarily to governmental entities and manufacturers. Deferred revenue includes amounts that customers pay prior to the shipment of products. Deferred revenue was $4,212,662 and $5,587,693 as of January 1, 2024 and 2023, respectively.

 

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(2)	Summary of Significant Accounting Policies, Continued

 

Revenue Recognition, Continued

 

The Company's principal terms of sale are FOB shipping point and FOB destination and the Company transfers control and records revenue for product sales either upon shipment or delivery to the customer, respectively. The payment terms and conditions in customer contracts vary from 30-90 days from transfer of control. The Company does not have any significant financing components as payment is received at or shortly after the point of sale. Variable consideration, including return and warranty activity, is immaterial to revenue and results of operations.

 

Investment in Joint Venture

 

The Company accounts for its investment in joint venture using the equity method (see Note 7).

 

Goodwill

 

Goodwill represents the excess of costs over fair value of net assets of businesses acquired. The Company applies the guidance in Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2014-18, Accounting for Identifiable Intangible Assets in a Business Combination, which allows entities who meet the definition of a private company to subsume many of the types of customer-related intangible assets that they would otherwise recognize separately into goodwill. This accounting alternative will be applied to any future business combination transactions. As a result of the application of ASU 2014-18, the Company is also required to apply the guidance in FASB ASU 2014-02, Intangibles - Goodwill and Other, which allows the amortization of all existing and new goodwill. Under ASU 2014-02, goodwill is amortized on a straight-line basis over ten years, or less than ten years, if the entity demonstrates that a shorter useful life is more appropriate. In addition, entities are required to test goodwill for impairment only upon the occurrence of a triggering event and, upon adoption of the accounting alternative, an entity must make an accounting policy election to test goodwill for impairment at either the entity level or the reporting unit level. Management has elected to amortize goodwill over ten years and test for impairment at the reporting unit level, should triggering events occur. No triggering events were identified during the six months ended June 30, 2024 and 2023.

 

Investment in Insurance Captive

 

The Company participates in a group captive insurance program (Captive) for workers' compensation and general liability insurance. Members pay annual premiums, of which an amount may be refunded to a member depending on the member's individual claims, as well as the Captive's overall claims.

 

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(2)	Summary of Significant Accounting Policies, Continued

 

Warranty Reserve

 

The Company offers warranties on its products ranging from twelve to forty months depending on the product line. Warranty reserves are determined based on management's past experience for returns and warranty claims and are included in accrued expenses.

 

Research and Development

 

Research and development costs are expensed as incurred. Research and development expense from continuing operations was approximately $150,000 and $176,000 for the six months ended June 30, 2024 and 2023, respectively.

 

Variable Interest Entities

 

FASB Accounting Standards Codification (ASC) 810, Consolidation, provides guidance in determining when variable interest entities (VIE) should be consolidated in the financial statements of the primary beneficiary. If the Company is deemed to have a controlling financial interest as a result of having the power to direct the activities that most significantly impact the entity's economic performance, and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE, the VIE is to be consolidated within the financial statements of the Company. NWLIS has been determined to be a VIE of the Company as NWLIS is dependent on the commission revenue from NWL. Since all rights, obligations and the power to direct the activities of a VIE that most significantly impact the VIE's economic performance are held by the owners of NWLIS and not by the Company, the Company has determined that it is not the primary beneficiary of NWLIS and therefore, NWLIS will be combined and not consolidated into the financial statements. The Company does not believe there is any exposure to loss as a result of transactions with NWLIS.

 

Income Taxes

 

Effective January 1, 2015, Megatran, NWL and Hunter elected to be taxed as S corporations under the provisions of the Internal Revenue Code. Under those provisions, the Company does not pay federal or state corporate income taxes because the Company's taxable income is passed through to the tax returns of the stockholders. Accordingly, no provision is made for federal or state income taxes. However, it is common for the Company to make distributions to the stockholders to pay the income taxes relating to the Company's income that is passed through to the stockholders' tax returns. Effective January 1, 2023, Megatran Industries, Inc. & Subsidiaries elected into the New Jersey Pass-Through Business Alternative Income Tax which will subject the Company to New Jersey state tax on New Jersey allocated income. The tax provision for New Jersey income tax for the six months ended June 30, 2024 and 2023 were deemed insignificant to the consolidated financial statements. Accordingly, no provision is made for federal or state income taxes.

 

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(2)	Summary of Significant Accounting Policies, Continued

 

Income Taxes, Continued

 

The stockholders of NWLIS have elected to treat NWLIS as an IC-DISC for federal income tax purposes. NWLIS does not pay federal or state corporate income taxes because NWLIS' taxable income is passed through to the tax returns of the stockholders. Accordingly, no provision is made for federal or state income taxes.

 

FASB ASC 740, Income Taxes, clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements. FASB ASC 740 prescribes a more-likely-than-not recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken. In addition, FASB ASC 740 provides guidance on derecognition, classification and disclosure. In addition to its federal returns, the Company files income tax returns in New Jersey and North Carolina. The Company is no longer subject to federal, state, or local tax examinations by tax authorities for years before 2020. It is difficult to predict the timing and resolution of any particular uncertain tax position. Based on the Company's assessment of many factors, including past experience and complex judgments about future events, the Company does not currently anticipate significant changes in its tax positions over the next twelve months.

 

Foreign Currency Translation

 

Foreign currency translation adjustments are included in other comprehensive income and are reflected in accumulated other comprehensive loss in the accompanying combined balance sheets.

 

Use of Estimates

 

The preparation of the combined financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the combined financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

 

Subsequent Events

 

Management has evaluated subsequent events through July 30, 2024, the date on which the combined financial statements were available to be issued.

 

---

 

(3)	Inventories, net

 

Inventories, net comprise the following at June 30:

 

		2024				2023
Raw material		$	15,870,464			$	13,167,500
Work-in-process			4,408,826				4,929,349
Finished goods			2,250,662				2,359,958
			22,529,952				20,456,807
Reserve for obsolescence			(1,323,152	)			(850,965	)
		$	21,206,800			$	19,605,842

 

 

(4)	Advances to Stockholders

 

Advances to stockholders are unsecured, noninterest bearing advances. These advances do not have set repayment dates.

 

 

(5)	Property, Plant and Equipment, net

 

Property, plant and equipment, net comprise the following at June 30:

 

		2024				2023				Estimated Useful Lives Years
Land		$	303,348			$	303,348
Buildings and building improvements			6,379,579				6,192,207				7	-	39
Machinery and equipment			8,562,164				7,793,479				7	-	10
Solar equipment			5,667,333				5,667,333				7	-	15
Automobiles and trucks			299,842				306,332					5
Office equipment			551,554				551,554				5	-	7
Computer hardware and software			585,606				573,811				3	-	5
Construction-in-progress			330,625				-
			22,680,051				21,388,064
Accumulated depreciation			(17,994,528	)			(17,593,120	)
		$	4,685,523			$	3,794,944

 

Depreciation expense for the six months ended June 30, 2024 and 2023 was $223,290 and $209,277, respectively.

 

---

 

(6)	Goodwill, net

 

Goodwill, net comprises the following at June 30:

 

		2024				2023
CE Power Solutions		$	1,109,989			$	1,109,989
BUED			213,305				213,305
			1,323,294				1,323,294
Accumulated amortization			(1,163,899	)			(1,142,569	)
		$	159,395			$	180,725

 

Amortization expense was $10,665 for the six months ended June 30, 2024 and 2023.

 

 

(7)	Investment in Joint Venture

 

NWL owns 50% of NWL Pacific Inc. Co., LTD. (NWL Pacific) which is a joint venture in South Korea. The joint venture was established on May 12, 1998. The Company's reporting currency is the US dollar while the functional currency of the joint venture is the South Korean Won. The assets, liabilities and equity of the joint venture have been measured at the respective exchange rate as of December 31, 2023 and 2022. The income and expense accounts were remeasured at the average rates in effect during the six months ended June 30, 2024 and 2023 and were determined to be insignificant to the combined financial statements. Remeasurement adjustments are recognized in the year of occurrence and are included as a component of stockholder's equity. In addition, the Company's share of the joint venture's net income or loss is recognized in the year of occurrence.

 

The Company's investment in the foreign operation is summarized as follows:

 

		2024				2023
Investment, January 1		$	2,118,612			$	2,059,581
Company's share of dividends			(139,191	)			(138,263	)
Investment, June 30		$	1,979,421			$	1,921,318

 

---

 

(7)	Investment in Joint Venture, Continued

 

Presented below are the summary balance sheets and summary of operations of the foreign operation based on the annual audited financial statements of NWL Pacific:

 

		12/31/2023				12/31/2022
Assets:
Current assets		$	5,255,791			$	6,668,330
Noncurrent assets			493,865				540,698
Total assets		$	5,749,656			$	7,209,028
Liabilities and stockholders' equity:
Current liabilities		$	1,512,433			$	3,089,865
Equity			4,237,223				4,119,163
Total liabilities and equity		$	5,749,656			$	7,209,028
Operations:
Sales		$	8,299,324			$	9,195,244
Cost of sales			(5,540,671	)			(6,201,536	)
Selling, general and administrative expenses			(1,813,830	)			(1,853,003	)
Other expense			(83,609	)			(181,825	)
Net income		$	861,214			$	958,880

 

 

(8)	Related Party Transactions

 

During the six months ended June 30, 2024 and 2023, the Company sold $596,791 and $709,992, respectively, of product to NWL Pacific. The Company has $488,346 and $860,690, respectively, included in accounts receivable from NWL Pacific at June 30, 2024 and 2023.

 

 

(9)	Line of Credit

 

The Company has a $5,000,000 working line of credit with a commercial bank that expires in August 2024. The balance on the line of credit was $3,000,000 and $2,000,000 as of June 30, 2024 and 2023, respectively. Borrowings on the line of credit bear interest at the daily LIBOR rate plus 1.80% (7.11% at June 30, 2024). Up to $5,000,000 of the working line of credit may be used towards letters of credit. There are no outstanding letters of credit at June 30, 2024 and 2023. The line is collateralized by the assets of the Company.

 

---

 

(10)	Long-Term Debt

 

Long-term debt comprises the following at June 30, 2023:

Equipment loan, payable in monthly installments of$5,868 including interest at 5.63%. The loan is collateralized by the equipment and matures in November 2023.		$	34,425
Current portion			(34,425	)
		$	-

 

 

(11)	Retirement Plan

 

NWL maintains a 401(k) plan to provide retirement benefits to its employees. Employee contributions are limited by Internal Revenue Service regulations. Total Company matching contributions and profit sharing contributions were $371,667 and $247,356 for the six months ended June 30, 2024 and 2023, respectively.

 

(12)	Self-Insurance

 

The Company maintains a self-insured program for all of its employees' health care costs. The Company is liable for paid claims up to $175,000 per participant, annually, unlimited for a covered person's lifetime, and aggregate claims up to $3,501,236 annually. The program has an insurance stop loss policy for claims in excess of $175,000 per participant and aggregate claims in excess of $3,501,236. The maximum reimbursement under the insurance stop loss policy is $1,000,000. Self- insurance costs are accrued based on the aggregate liability for reported claims and an estimated liability for claims incurred but not reported. The accrued liability under the self-insurance program as of June 30, 2024 and 2023 was approximately $177,000 and $719,000, respectively, and is included in accrued expenses on the accompanying combined balance sheets.

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTARY INFORMATION

 

 

 

 

 

 

 

 

 

 

---

 

 

						% of Net								% of Net
		2024				Sales				2023				Sales
Direct costs:
Direct materials		$	17,026,853				44.5	%		$	17,791,796				49.7	%
Direct labor			4,105,750				10.7				4,318,959				12.1
			21,132,603				55.2				22,110,755				61.8
Indirect costs:
Personnel:
Wages			1,892,168				4.9				1,738,473				4.9
Employee benefits			1,053,333				2.7				1,053,383				2.9
Payroll taxes			866,587				2.3				790,405				2.2
Recruitment			70,505				0.2				75,934				0.2
			3,882,593				10.1				3,658,195				10.2
Manufacturing:
Production supplies			249,419				0.7				270,499				0.8
Sub-contract services			107,812				0.3				219,400				0.6
Manufacturing - development			78,426				0.2				81,850				0.2
Manufacturing - miscellaneous			340,059				0.9				349,124				1.0
Small tools			33,928				0.1				94,105				0.3
Quality control			12,591				-				13,248				-
Overhead allocation, net			29,299				0.1				18,150				0.1
			851,534				2.3				1,046,376				3.0
Facilities:
Repairs and maintenance			318,800				0.8				297,597				0.8
Depreciation			189,192				0.5				175,020				0.5
Utilities			154,695				0.4				133,340				0.4
Insurance			329,183				0.9				269,193				0.8
Property and sales taxes			139,994				0.4				135,317				0.4
			1,131,864				3.0				1,010,467				2.9
Total indirect costs			5,865,991				15.4				5,715,038				16.1
Cost of goods sold		$	26,998,594				70.5	%		$	27,825,793				77.7	%

 

See accompanying notes to combined financial statements.

 

---

 

 

						% of Net								% of Net
		2024				Sales				2023				Sales
Selling		$	75,824				0.2	%		$	34,622				0.1	%
Service calls			197,975				0.5				170,077				0.5
Travel			16,365				-				46,379				0.1
Commissions			77,139				0.2				56,792				0.2
Advertising and marketing			4,681				-				10,469				-
Automobile			1,549				-				489				-
Wages			3,843,904				10.0				2,902,706				8.1
Employee benefits			695,798				1.8				613,729				1.7
Employee welfare			49,951				0.1				27,738				0.1
Employee education			33,229				0.1				30,387				0.1
Retirement plan			247,276				0.6				240,000				0.7
Depreciation			34,098				0.1				34,257				0.1
Amortization			10,665				-				10,665				-
Professional fees			303,926				0.8				211,156				0.6
Engineering			106,023				0.3				190,310				0.5
Lease expense			10,850				-				10,342				-
Bad debt expense			42,221				0.1				-				-
Miscellaneous			195,635				0.5				107,457				0.3
Computer expenses			196,045				0.5				122,985				0.3
Telephone			30,823				0.1				26,840				0.1
Office expense			15,987				-				30,962				0.1
Payroll service			98,368				0.3				87,306				0.2
Taxes			25,489				0.1				744				-
Bank charges			27,552				0.1				18,351				0.1
		$	6,341,373				16.6	%		$	4,984,763				13.9	%

 

 

See accompanying notes to combined financial statements.

 

---

 

 

		2024				% of Net Sales				2023				% of Net Sales
State income taxes		$	(58,055	)			(0.1	)		$	(3,086	)			-
Interest income (expense), net			269				-				(16,310	)			-
License fee income			9,540				-				48,931				-
Miscellaneous income (loss)			(184	)			-				57,008				0.2
		$	(48,430	)			(0.1	)%		$	86,543				0.2	%

 

 

See accompanying notes to combined financial statements.

 

Exhibit 99.3

 

Unaudited Pro Forma Condensed Consolidated Financial Data

 

On August 1, 2024, American Superconductor Corporation (“AMSC” or the “Company”), entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with each of the sellers listed on the signature pages thereto (each, a “Selling Stockholder” and collectively, the “Selling Stockholders”), Megatran Industries, Inc, a New Jersey corporation (“Megatran”) and James David Seitz, an individual, solely in his capacity as the stockholder representative thereunder (the “Stockholder Representative”).

 

Pursuant to the terms of the Stock Purchase Agreement and concurrently with entering into such agreement, the Company purchased all of the issued and outstanding shares of Megatran (collectively, the “Acquired Interests”) for aggregate consideration in an amount equal to $61,350,000 (the “Purchase Price”), which consideration amount shall be subject to various adjustments set forth in the Stock Purchase Agreement (including those described below) and consists of: (a) (i) $25,000,000, minus (ii) the Indebtedness (as defined in the Stock Purchase Agreement) outstanding as of immediately prior to the closing, minus (iii) Company Expenses (as defined in the Stock Purchase Agreement) (collectively, the “Cash Purchase Price”); (b) a number of restricted shares (rounded up or down to the nearest whole share, as applicable) (the “Company Shares”) of the Company’s common stock, $.01 par value per share (“Common Stock”) equal to the quotient obtained by dividing (x) $31,350,000 (the “Share Purchase Price”) by (y) the closing price per share of Common Stock on the Nasdaq Global Select Market on the last trading day immediately preceding the Closing Date; and (c) an additional cash payment equal to $5,000,000, as adjusted pursuant to Sections 5.6(c), (d), and (f) of the Stock Purchase Agreement (the “Additional Cash Purchase Price”).

 

The unaudited pro forma condensed consolidated financial information contained herein is based on the historical financial statements of AMSC, and the historical financial statements of Megatran, which are filed as Exhibit 99.1 and Exhibit 99.2 to this Current Report on Form 8-K/A, and has been adjusted to give effect to AMSC’s  acquisition of Megatran, which was accounted for under the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations.

 

The historical financials of Megatran were prepared under the standards for private companies and as such reflect accounting for Goodwill according to guidance in Financial Accounting Standards Board (FASB) Accounting Standards Updated (ASU) 2014-18, Accounting for Identifiable Intangible Assets in a Business Combination, which allows entities who meet the definition of a private company to subsume many of the types of customer-related intangible assets that they would otherwise recognize separately into goodwill. As a result of the application of ASU 2014-18, Megatran also applied guidance in FASB ASU 2014-02, Intangibles- Goodwill and Other which allows amortization of all existing goodwill for private companies.  Megatran amortized goodwill over 10 years and tested for impairment at the reporting unit should a triggering event occurs.  No triggering events occurred in the reporting periods ended December 31, 2023 and December 31, 2022.  Management considered the difference in accounting treatment from Accounting Standards Codification ("ASC") 805, Business Combinations and ASC 350-20 for public companies, as goodwill is not amortized for public reporting companies. Management concluded the impact of amortizing the goodwill by Megatran would not materially change the financial results used to derive the pro forma condensed consolidated financial information contained herein.

 

The unaudited pro forma condensed consolidated balance sheet as of June 30, 2024 is presented as if the Acquisition (as defined below) had occurred on June 30, 2024 and is based on the unaudited condensed consolidated balance sheet of AMSC as of June 30, 2024 (as filed with the Securities and Exchange Commission (“SEC”) in its Quarterly Report on Form 10-Q for the quarter ended June 30, 2024) and the unaudited condensed combined balance sheet of  Megatran as of June 30, 2024, which has been derived from its underlying accounting records.

 

The unaudited pro forma condensed consolidated statement of operations for the three months ended June 30, 2024 is presented as if the Acquisition had occurred on April 1, 2024 and is based upon the unaudited condensed consolidated statement of operations of  AMSC for the three months ended June 30, 2024 (as filed with the SEC in its Quarterly Report on Form 10-Q for the quarter ended June 30, 2024) and the unaudited condensed consolidated statement of operations of Megatran for the three months ended June 30, 2024, which has been derived from its underlying accounting records.

 

The unaudited pro forma condensed consolidated statement of operations for the year ended March 31, 2024 is presented as if the Acquisition had occurred on April 1, 2023 and is based upon the audited consolidated statement of operations of AMSC for the year ended March 31, 2024 (as filed with the SEC in its Annual Report on Form 10-K for the year ended March 31, 2024) and the audited combined statement of operations and comprehensive income of Megatran for the year ended December 31, 2023 (included in Exhibit 99.1 to this Current Report on Form 8-K/A).

 

The unaudited pro forma condensed consolidated statements of operations reflect only pro forma adjustments that are (i) directly attributable to the Acquisition, (ii) factually supportable, and (iii) expected to have a continuing impact on the results of the combined company beyond twelve months and have not been adjusted to reflect any operating efficiencies that may be realized by AMSC as a result of the Acquisition. AMSC expects to incur certain charges and expenses related to integrating the operations of AMSC and Megatran. AMSC is assessing the combined operating structure, business processes, and other assets of these businesses and is developing a combined strategic operating plan. The objective of this plan will be to enhance productivity and efficiency of the combined operations. The unaudited pro forma condensed consolidated statements of operations do not reflect such charges and expenses.

 

The unaudited pro forma condensed consolidated financial statements are for illustrative purposes only, are hypothetical in nature and do not purport to represent what our results of operations, balance sheet or other financial information would have been if the Acquisition had occurred as of the dates indicated. The unaudited pro forma adjustments are based upon available information and certain assumptions that we believe are reasonable, including an allocation of the purchase price based on an estimate of fair value and excluding certain non-recurring charges as disclosed. These estimates are preliminary and are based on information currently available and could change significantly. The unaudited pro forma condensed consolidated financial statements and the accompanying notes should be read in conjunction with the historical consolidated financial statements, including the related notes, of AMSC included in its Annual Report on Form 10-K for the year ended March 31,2024 and its Quarterly Report on Form 10-Q for the quarter ended June 30, 2024 and the audited combined financial statements of Megatran included in Exhibit 99.1 and unaudited combined financial statements of Megatran included in Exhibit 99.2 to this Current Report on Form 8-K/A.

 

 

AMERICAN SUPERCONDUCTOR CORPORATION

 

UNAUDITED CONDENSED COMBINED PRO FORMA BALANCE SHEET

 

June 30, 2024

 

							Pro Forma Adj				Combined
	AMSC As Reported			Megatran As Reported			for Acquisition				Pro Forma
ASSETS
Current assets:
Cash and cash equivalents	$	93,455		$	2,545		$	(3,975	)	(k)	$	92,025
Accounts receivable, net		23,529			20,036			-				43,565
Inventory		45,149			21,207			728		(a)		67,084
Prepaid expenses and other current assets		10,424			1,457			-				11,881
Restricted cash		468			-			-				468
Total current assets		173,025			45,246			(3,247	)			215,024
Property, plant and equipment, net		10,529			4,686			23,744		(b)		38,959
Intangibles, net		5,957			-			1,940		(i)		7,897
Right-of-use assets		4,096			-			-				4,096
Investment in joint venture		-			1,979			(734	)	(j)		1,245
Goodwill		43,471			159			7,141		(i)		50,771
Restricted cash		1,600			-			-				1,600
Deferred tax assets		1,114			-			-				1,114
Other assets		351			42			-				393
Total assets	$	240,143		$	52,112		$	28,844			$	321,099
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	22,309		$	4,796		$	550		(c)	$	27,655
Line of credit		-			3,000			(3,000	)	(k)		-
Accrued distributions		-			975			(975	)	(k)		0
Other liabilities		-			120			-				120
Lease liability, current portion		862			-			-				862
Debt, current portion		9			-			-				9
Contingent consideration		7,020			-			-				7,020
Deferred revenue, current portion		55,984			4,217			-				60,201
Total current liabilities		86,184			13,109			(3,425	)			95,868
Deferred revenue, long term portion		6,929			-			-				6,929
Lease liability, long term portion		3,359			-			-				3,359
Deferred tax liabilities		300			-			6,534		(d)		6,834
Other liabilities		27			-			-				27
Total liabilities		96,799			13,109			3,109				113,017
Stockholders' equity:
Common stock		374			45			(32	)	(e)		387
Additional paid-in capital		1,214,320			-			61,337		(e)		1,275,657
Treasury stock		(3,765	)		-			-		(e)		(3,765	)
Equity in Investment					6			(6	)	(e)		(0	)
Accumulated other comprehensive loss		1,597			(334	)		334		(e)		1,597
Retained Earnings		(1,069,182	)		39,286			(35,898	)	(e)		(1,065,794	)
Total stockholders' equity		143,344			39,003			25,735				208,082
Total liabilities and stockholders' equity	$	240,143		$	52,112		$	28,844			$	321,099

 

 

AMERICAN SUPERCONDUCTOR CORPORATION

 

UNAUDITED CONDENSED COMBINED PRO FORMA STATEMENT OF OPERATIONS

 

For the Fiscal Year Ended March 31, 2024

 

		Year Ended
		March 31, 2024
		AMSC As Reported				Megatran As Reported				Pro Forma Adj for Acquisition					Combined Pro Forma
Revenues		$	145,639			$	72,315			$	-				$	217,954
Cost of revenues			110,356				55,065				607		(f)			166,028
Gross margin			35,283				17,250				(607	)				51,926
Operating expenses:
Research and development			7,991				-				-					7,991
Selling, general and administrative			31,600				11,507				780		(c)			43,887
Amortization of acquisition-related intangibles			2,152				-				128		(f)			2,280
Change in fair value on contingent consideration			4,922				-				-					4,922
Restructuring			(14	)			-				-					(14	)
Total operating expenses			46,651				11,507				908					59,066
Operating profit/(loss)			(11,368	)			5,743				(1,515	)				(7,140	)
Interest income, net			1,302				-				-					1,302
Other (expense)/income, net			(736	)			2,388				-					1,652
Loss before income tax expense			(10,802	)			8,131				(1,515	)				(4,186	)
Income tax expense (benefit)			309				-				(343	)	(g)			(34	)
Net loss		$	(11,111	)		$	8,131			$	(1,172	)			$	(4,152	)
Net loss per common share
Basic		$	(0.37	)											$	(0.13	)
Diluted		$	(0.37	)											$	(0.13	)
Weighted average number of common shares outstanding
Basic			29,825								1,298		(h)			31,123
Diluted			29,825								1,298					31,123

 

 

AMERICAN SUPERCONDUCTOR CORPORATION

 

UNAUDITED CONDENSED COMBINED PRO FORMA STATEMENT OF OPERATIONS

 

For the Three Months Ended June 30, 2024

 

		Three Months Ended
		June 30, 2024
		AMSC As Reported				Megatran As Reported				Pro Forma Adj for Acquisition					Combined Pro Forma
Revenues		$	40,290			$	19,020			$	-				$	59,310
Cost of revenues			28,065				13,946				152		(f)			42,163
Gross margin			12,225				5,074				(152	)				17,147
Operating expenses:
Research and development			2,286				-				-					2,286
Selling, general and administrative			8,898				3,751				550		(c)			13,199
Amortization of acquisition-related intangibles			412				-				32		(f)			444
Change in fair value of contingent consideration			3,920				-				-
Total operating expenses			15,516				3,751				582					15,929
Operating profit/(loss)			(3,291	)			1,323				(734	)				(2,702	)
Interest income, net			1,120				-				-					1,120
Other (expense)/income, net			(160	)			9				-					(151	)
Loss before income tax expense			(2,331	)			1,332				(734	)				(1,733	)
Income tax expense (benefit)			193				-				(166	)	(g)			27.0
Net loss		$	(2,524	)		$	1,332			$	(568	)			$	(1,760	)
Net loss per common share
Basic		$	(0.07	)											$	(0.05	)
Diluted		$	(0.07	)											$	(0.05	)
Weighted average number of common shares outstanding
Basic			35,676								1,298		(h)			36,974
Diluted			35,676								1,298					36,974

 

 

1. MEGATRAN ACQUISITION

 

On August 1, 2024, American Superconductor Corporation, a Delaware corporation (“AMSC” or the “Company”), completed the acquisition (the “Acquisition”) of Megatran Industries, Inc, (“Megatran”), a New Jersey corporation, pursuant to a Stock Purchase Agreement (the “Stock Purchase Agreement”) dated August 1, 2024 between the Company and each of the sellers listed on the signature pages thereto (each, a “Selling Stockholder” and collectively, the “Selling Stockholders”), Megatran Industries, Inc, a New Jersey corporation (“Megatran”) and James David Seitz, an individual, solely in his capacity as the stockholder representative thereunder (the “Stockholder Representative”). Pursuant to the Stock Purchase Agreement, the Company purchased from the Selling Stockholders all of the issued and outstanding shares of Megatran for which the Company paid the Selling Stockholders: (a) (i) $25,000,000, minus (ii) the Indebtedness (as defined in the Stock Purchase Agreement) outstanding as of immediately prior to the closing, minus (iii) Company Expenses (as defined in the Stock Purchase Agreement) (collectively, the “Cash Purchase Price”); (b) a number of restricted shares (rounded up or down to the nearest whole share, as applicable) (the “Company Shares”) of the Company’s common stock, $.01 par value per share (“Common Stock”) equal to the quotient obtained by dividing (x) $31,350,000 (the “Share Purchase Price”) by (y) the closing price per share of Common Stock on the Nasdaq Global Select Market on the last trading day immediately preceding the Closing Date; and (c) an additional cash payment equal to $5,000,000, as adjusted pursuant to Sections 5.6(c), (d), and (f) of the Stock Purchase Agreement (the “Additional Cash Purchase Price”). As a result of this transaction, Megatran is a wholly-owned subsidiary of the Company.

 

The estimated fair value of the common stock issued was determined using $24.16 per share, which was the closing price on the day prior to the day that the Company acquired Megatran.

 

The following table summarizes the preliminary purchase price allocation at August 1, 2024 (in thousands):

 

Cash and cash equivalents		$	481
Investment in joint venture			1,245
Prepaid and other current assets			1,376
Accounts receivable			16,734
Inventory			22,595
Property plant and equipment			28,430
Accrued expenses			(3,203	)
Accounts payable			(4,394	)
Deferred revenue			(4,494	)
Other			(166	)
Deferred tax liability			(6,534	)
Net tangible assets/(liabilities)			52,070
Backlog			700
Customer relationships			1,280
Net identifiable intangible assets			1,980
Goodwill			7,300
Total purchase consideration		$	61,350

 

This purchase price allocation is preliminary and has not been finalized in that the analysis on the assets and liabilities acquired, primarily the tax related liability, may require further adjustments to our purchase accounting that could result in a measurement adjustment that would impact our reported net assets and Goodwill as of August 1, 2024. Material changes, if any, to the preliminary allocation summarized above will be reported once the related uncertainties are resolved, but no later than August 1, 2025. The $6.5 million of deferred tax liability is primarily related to property, plant and equipment. We have concluded that, based on the standard set forth in ASC 740, Accounting for Income Taxes, it is more likely than not that we will realize the expenses from these deferred tax liabilities.

 

The excess of the purchase price over estimated fair values assigned to the identifiable tangible and intangible assets acquired and liabilities assumed is $7.3 million, which represents the amount of non-deductible goodwill resulting from the Megatran acquisition. In accordance with ASC 350, Intangible – Goodwill and Other Assets, we will test goodwill for impairment on an annual basis and between annual tests if we become aware of any events occurring or changes in circumstances that would indicate a reduction in the fair value of the goodwill below its carrying amount.

 

 

2. BASIS OF PRO FORMA PRESENTATION

 

The unaudited condensed combined pro forma balance sheet as of June 30, 2024 gives pro forma effect to the Acquisition as if the Acquisition had occurred on June 30, 2024. The Acquisition will be accounted for by the purchase method of accounting pursuant to which the purchase price is allocated among the acquired tangible and intangible assets and assumed liabilities in accordance with estimates of their fair values on the date of acquisition. The unaudited condensed combined pro forma balance sheet as of June 30, 2024 was prepared by combining the Company’s historical unaudited condensed combined pro forma balance sheet as of June 30, 2024 with Megatran’s historical unaudited combined balance sheet as of June 30, 2024.

 

The unaudited condensed combined pro forma statement of operations for the last full fiscal year was prepared by combining the Company’s historical audited statement of operations for the fiscal year ended March 31, 2024 with Megatran’s historical audited statement of operations and comprehensive income for the fiscal year ended December 31, 2023. The unaudited condensed combined pro forma statement of operations for the three months ended June 30, 2024 was prepared by combining the Company’s historical unaudited statement of operations for the three months ended June 30, 2024 with Megatran’s historical unaudited statement of operations and comprehensive income for the three months ended June 30, 2024. The unaudited condensed combined pro forma statements of operations for the twelve months ended March 31, 2024 and the three months ended June 30, 2024 give pro forma effect to the Acquisition as if the transaction had occurred on April 1, 2023 or April 1, 2024, respectively.

 

The pro forma adjustments represent the Company’s preliminary determination of purchase accounting adjustments and are based upon available information and certain assumptions that Company believes to be reasonable under the circumstances. The pro forma adjustments and certain assumptions are described in the accompanying notes. The allocation of the purchase price is preliminary and may be revised upon the completion of the review of the fair value accounting and tax impacts from acquisitions, which is in progress. The final allocation of purchase price could differ materially from estimated allocated amounts included in these pro forma financial statements. The unaudited condensed combined pro forma financial information presented below does not purport to be indicative of the financial position or results of operations of the Company had such transactions actually been completed as of the assumed dates and for the periods presented, or which may be obtained in the future.

 

The following summarizes the preliminary estimated purchase price paid to Megatran and used in the allocation to account for Acquisition (in millions):

 

Cash payment	30.0
Issuance of 1,297,600 shares of Company’s Common Stock	31.4

 

The value of the proceeds from the issuance of the shares of the Company's common stock, for the purpose of determining the accounting purchase price, was determined based on the closing price on the day prior to the acquisition of Megatran.

 

3. PRO FORMA ADJUSTMENTS

 

The following pro forma adjustments (including eliminations) are included in the unaudited condensed combined pro forma balance sheet and statements of operations:

 

(a) To record an adjustment to Megatran's inventory to reflect the fair value of inventory, primarily work in progress, at the date of Acquisition. The related expense has not been included as an adjustment to cost of revenue in the pro forma statements of operations because its impact is not expected to recur beyond twelve months from the date of the Acquisition.

(b) To record an adjustment to Megatran's property, plant and equipment to reflect the fair value of property, plant and equipment at the date of Acquisition.  The related depreciation expense has not been included as an adjustment to operating expenses in the pro forma statements of operations because its impact is not expected to be material as the primary asset acquired is land.

(c) To record an increase in accounts payable for the estimated acquisition transaction costs incurred as of June 30, 2024

(d) To record preliminary estimated deferred tax liabilities related to the non-deductible identifiable intangible assets, at 22.64% reflecting the federal and state of New Jersey effective tax rate.

(e) To record the elimination of Megatran's historical retained earnings and equity accounts, and to reflect $61.350 million in cash and the fair value of the equity issuance of   1,297,600 shares of Common Stock for the consideration transferred.

(f) To record the amortization expense associated with acquired intangible assets including Contractual relationships/backlog and Customer relationships for the fiscal year ended March 31, 2024, and the three months ended June 30, 2024.

 

		Purchase				Estimated				Expense				Expense			Amortization Method
		Price				Useful				allocated for				allocated for
		Allocation				Life				12 months				3 months
						(years)
Intangible asset
Contractual relationships / backlog		$	700,000				2			$	606,593			$	151,738		Economic Consumption
Total Cost of revenues amortization of intangible			700,000								606,593				151,738
Customer relationships			1,280,000				10				128,000				32,000		Straight Line
Total Selling, general and administrative amortization of intangibles			1,280,000								128,000				32,000
Total costs in excess of tangible assets		$	1,980,000							$	734,593			$	183,738

 

(g)   To record an estimated income tax benefit on pro forma adjustments to income related to the Acquisition, at 22.64% effective tax rate.

h) To reflect an increase in the weighted average shares outstanding for the period after giving effect to the issuance of AMSC common stock in connection with the Acquisition.

(i) To record the estimated value of goodwill acquired, which is estimated as the difference between the purchase price of $61.350 million and the estimated fair value of identifiable assets and liabilities. The goodwill recorded represents the anticipated incremental value of future cash flow potential attributable to the ability to grow the Grid business product lines though Megatran leveraging its customer base.

(J)  To record the estimated fair value of the interest in the joint venture at the date of Acquisition.

(k) To record the settlement of the line of credit and the accrued stockholders' distribution as of the date of Acquisition.

 

 

v3.24.2.u1

Document And Entity Information	Aug. 01, 2024
Document Information [Line Items]
Entity, Registrant Name	American Superconductor Corporation
Document, Type	8-K/A
Document, Period End Date	Aug. 01, 2024
Entity, Incorporation, State or Country Code	DE
Entity, File Number	000-19672
Entity, Tax Identification Number	04-2959321
Entity, Address, Address Line One	114 East Main Street
Entity, Address, City or Town	Ayer
Entity, Address, State or Province	MA
Entity, Address, Postal Zip Code	01432
City Area Code	978
Local Phone Number	842-3000
Written Communications	false
Soliciting Material	false
Pre-commencement Tender Offer	false
Pre-commencement Issuer Tender Offer	false
Title of 12(b) Security	Common Stock
Trading Symbol	AMSC
Security Exchange Name	NASDAQ
Entity, Emerging Growth Company	false
Amendment Description	Form 8-K/A Megatran ProForma
Amendment Flag	true
Entity, Central Index Key	0000880807

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